Matrix Blog

Federal Reserve Bank

Tight Credit Is Causing Housing Prices to Rise

February 6, 2013 | 9:18 am | | Charts |


[click to expand]

I’ll repeat that: Tight Credit Is Causing Housing Prices to Rise.

Yes I know. I’ll explain.

This week the Federal Reserve released it’s January 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices and it continued to show little movement in mortgage underwriting standards but demand was up. The increase in demand has not softened mortgage lending standards. In fact, mortgage standards have remained essentially unchanged since Lehman collapsed in 2008.

On the household side, domestic banks reported that standards for both prime and nontraditional mortgages were essentially unchanged over the past three months. Respondents indicated that demand for prime residential mortgages increased, on net, while demand for nontraditional residential mortgages was unchanged.

Tight lending standards has prevented many sellers from listing their homes because they don’t qualify for the trade up, holding supply off the market. The shortage is manifesting itself by also keeping people unaffected by tight credit from listing until they find a home they wish to purchase. Record low mortgage rates keep the demand pressure on as affordability is at record highs. Rising prices are not really based on anything fundamental like employment and a robust economy.

Tight credit + record low mortgage rates => reduced supply + steady demand => rising prices.

Like I said before…

Tight Credit Is Causing Housing Prices to Rise.

I’ll repeat that….

Tight Credit Is Causing Housing Prices to Rise.



January 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices [Federal Reserve]
Falling Inventory Has Created a Housing “Pre-Covery,” not “Recovery” [Miller Samuel Matrix]

Tags:


[NewYork Fed] Excellent Mapping of Housing’s Recovery Process in Region

December 4, 2012 | 9:00 am | | Charts |


[click to expand]

The Federal Reserve has been relying more on CoreLogic housing data these days, rather than Case Shiller or NAR and I’m down with that. The New York Fed has put the CoreLogic data for New York, Connecticut and New Jersey to good use in a very easy to use interactive County format that I highly recommend you check out. They even present a two-fer: all sales, without distressed sales.

My only criticism of the presentation (and it’s really me just being petty) is the orientation to market peak in 2006 as the benchmark. I see the 2006 peak as an artificial level we should not be in a hurry to return to since it reflected all that was bad with the credit/housing boom.

But I digress…

The top chart shows that Manhattan and Brooklyn after removing distressed sales, have “recovered” using the Fed’s methodology. In fact all 5 boroughs are out-performing the US housing market.

Manhattan is clearly one of the top performing locations in the region or at least it is ahead of the region. The map below shows the counties (green) that are now equal to 2007 price levels. Not many in close proximity to Manhattan are doing as well.


[click to expand]



Housing Market Recovery in the Region [Federal Reserve Bank of New York]

Tags: , ,


Federal Reserve: Mortgage Underwriting Standards Haven’t Eased

November 5, 2012 | 7:00 am | | Reports |


[click to expand]

The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices came out and the news was more of the same. Their survey covers senior loan officers at about 60 domestic and two dozen foreign banks with US branches.

Key in on: Net Percentage of Domestic Respondents Tightening Standards for Mortgage Loans

Banks’ residential real estate lending standards reportedly remained about unchanged over the past three months. As in each of the previous three surveys this year, respondents reported little change in their standards for prime mortgages. In the October survey, standards on nontraditional mortgages were reportedly unchanged, in contrast to the tightening reported earlier in the year. Respondents continued to report that demand for residential mortgage loans had increased over the past three months on net, although the fractions of banks that reported an increase in demand for both prime and nontraditional residential mortgage loans declined from their levels in the July survey. Standards and demand for home equity lines of credit were reportedly about unchanged.

People are confusing rising demand with easing standards.


[In The Media] Bloomberg Surveillance 9-18-12 QE3, Low Rates and Housing

September 18, 2012 | 9:14 am | | Public |

Very much enjoyed my conversation with Tom Keene and Scarlet Fu on Bloomberg Television’s Surveillance.

Scratch notes before my appearance:

Some thoughts about the Fed’s QE3 as it relates to housing (Einstein defines insanity as doing something for a 3rd time hoping it works).

-Focus of QE3 seems to be housing, but it shows how little Fed understands housing since this seems to be an effort to press borrowing costs lower.
-Falling rates until now have increased affordability 15% this year but reaction in sales is less. A diminishing return for this action. Yes it temporarily helps but is more akin to the 2010 tax credit – remove it and consumers stop buying.
-Fed must believe recent “happy housing news” isn’t sustainable. Prices and sale generally showing improvement.

-Banks prob won’t drop rates all that much-could even see a slight increase in short term: admin backlog from existing business, guarantee fees by Fannie Mae to kick in a few months and spreads already low. This action provides little traction.

-QE3 doesn’t address THE REAL PROBLEM – mortgage underwriting remains irrationally tight. Smaller universe qualifies for mortgaged and a large number of contracts fall through – approx 15%.
-Telegraphing low rates through 2015 eliminates any urgency for consumers to take action. National volume up YOY but 2011 was the aftermath of 2010 tax credit so comparing against low.



Bernanke’s Speech on QE3 [MarketPlace.org]
Benanke Statement on QE3 [Federal Reserve]
QE3: What is quantitative easing? And will it help the economy? [WaPo Wonk Blog]
Fed’s Evans Says QE3 Will Make Economy More Resilient [Bloomberg]
Low Rates Not Improving Housing Market, Miller Says [Bloomberg Surveillance TV]

Tags: , , , , ,


Visualizing US Distressed Sales – Katrina Edition

June 7, 2012 | 2:28 pm | |

The WSJ presented a series of charts on US distressed properties based on information from the St. Louis Fed (most proficient data generators of all Fed banks) and LPS.

Here are the first and last maps of the series. To see all of them, go to the post over at Real Time Economics Blog at WSJ.

A few thoughts:

  • The distress radiates out from New Orleans 7 months after Hurricane Katrina hit. There was relatively tame distressed sales activity in the US in 2006, the peak of the US housing boom.
  • The article makes the observation that distressed activity is seeing some improvement in 2010. However the “robo-signing” scandal hit (late summer 2010) and distressed activity entering the market fell for the next 18 months as servicers restrained foreclosure activity until the servicer settlement agreement was reached in early 2012. This is likely why the distressed heat maps show some improvement.
  • The music stopped when people couldn’t make their payments en mass circa 2006, the US national housing market peak. It’s quite astounding how quickly credit-fueled conditions collapsed across the US.

Tags: , ,


[HUD] Housing Market Conditions, Loan Mod Redefault Risk

March 29, 2010 | 11:23 pm | |


[click to open map]

Today I received a nice note from an economist at HUD saying they are using the market report series we prepare for Prudential Douglas Elliman in US Department of Housing and Urban Development’s US Housing Market Conditions site, specifically their annual Regional Activity summary. Using-our-market-reports-aside, its a pretty good overview of what happened in each region. Sort of reminds me of a Beige Book-like housing analysis.

Not only that, but they provide access to a slew of data, research papers and reports as well as interactive maps that allow you to drill down to local levels.

This isn’t a sales pitch so check it out.

Here’s a hot button research paper on their site now:

Loan Modifications and Redefault Risk: An Examination of Short-Term Impacts

A primary concern with loan modification efforts is the seemingly high rate of recidivism. Within 6 months, more than one-half of all modified loans were 30 days or more delinquent and more than one-third were 60 days or more delinquent (OCC and OTS, 2008). Do these high rates of redefault imply that loan modifications are failing?

I would say as currently structured – YES.


Tags: ,


Regulators Are Human. That’s Precisely Why Bubbles Are Not Preventable

January 7, 2010 | 11:47 pm | |

David Leonhardt had a fantastic front pager in the New York Times yesterday that was such a compelling read, I re-read it to try and absorb anything I missed the first time. The article Fed Missed This Bubble. Will It See a New One? looked at the case made by the Fed to enhance its regulatory power.

David asks the question for the Fed:

If only we’d had more power, we could have kept the financial crisis from getting so bad.

But power and authority had nothing to do with whether they could see a bubble.

In 2004, Alan Greenspan, then the chairman, said the rise in home values was “not enough in our judgment to raise major concerns.” In 2005, Mr. Bernanke — then a Bush administration official — said a housing bubble was “a pretty unlikely possibility.” As late as May 2007, he said that Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”

I maintain that because of human nature, mob mentality, or whatever you want to call it, all regulators drank the kool-aid just like consumers, rating agencies, lenders, investors and anyone remotely connected with housing. Regulators are not imune from being human.

Once the crisis was upon us, the Fed and the regulatory alphabet soup woke up and began drinking a lot of coffee.

David concludes:

Which is why it is likely to happen again.

What’s missing from the debate over financial re-regulation is a serious discussion of how to reduce the odds that the Fed — however much authority it has — will listen to the echo chamber when the next bubble comes along.

Exactly.

I think this whole thing started with the repeal of Glass-Steagal where the boundaries between commercial and investment banks which were set during the Great Depression, were removed. Commercial banks had cheap capital (deposits) and could compete in the Investment Banking world. But Investment banks could not act like commercial banks. Their access to capital was more expense motivating them to get their allowable leverage ratios raised significantly. One blip and they go under.

Tags: , ,


[Boston Fed] Its Not How Much You Can Consume, Its How Much You Borrow To Consume

November 18, 2009 | 11:06 am | |

A quick shout out to Sam Chandan at Real Estate Econometrics for his invite to me to speak to his MBA real estate class at Wharton last Monday. A lot of fun and no tomatoes thrown. Added bonus, they have Au Bon Pain as snack shop.


[click to expand]

The widely held belief that houses were used as ATM’s during the credit boom is a valid assumption given the massive withdrawal of home equity. Of course that parallels mortgage lending and as a result, housing activity boomed over the same period.

With the post-Lehman credit crunch, millions of homeowners can’t refinance their mortgages or obtain a mortgage for a purchase. The contraction in credit has choked off the high pace of sales activity our economy has grown accustomed too. Yet sales and prices appear to be leveling off after a steady decline.

Q: Who’s buying these homes?
A: People that can actually afford and qualify for a mortgage.

According to a recent public policy discussion paper from the Federal Reserve Bank of Boston by Daniel Cooper Impending U.S. Spending Bust? The Role of Housing Wealth as Borrowing Collateral

house values affect consumption by serving as collateral for households to borrow against to smooth their spending….house values, however, have little effect on the expenditures of households who do not need to borrow to finance their consumption.

In other words, the segment of the consumer market that needs to borrow to spend, aren’t spending now. That doesn’t mean “no one is spending” – this is the cause for significant confusion in interpreting the health of our current economy.

For those who borrow to spend

The results show that the consumption of households who need to borrow against their home equity increases by roughly 11 cents per $1.00 increase in their housing wealth.

During the housing boom, the excess demand was simply fueled by those who had to excessively borrow to spend. It doesn’t mean that everyone had the same thinking.

Back to basics.


Tags:


[Fed Up] October 2009 Senior Loan Officer Opinion Survey

November 11, 2009 | 9:31 pm | |

I’m thinking maybe credit isn’t going to lead us out of the recession. Banks are getting much enjoyment out of the wide spreads for now – gearing up for future carnage in commercial, auto loans, credit cards and industrial loans. This is apparent in the The October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices that was released on Friday. Its kind of the Beige Book equivalent of anecdotal credit practices.

The report basically showed that fewer banks are tightening mortgage credit policy and mortgage demand is up. Of course this doesn’t mean much yet since bank lending policy can’t really can’t get much tighter.

In the October survey, domestic banks indicated that they continued to tighten standards and terms over the past three months on all major types of loans to businesses and households. However, the net percentages of banks that tightened standards and terms for most loan categories continued to decline from the peaks reached late last year.2 The exceptions were prime residential mortgages and revolving home equity lines of credit, for which there were only small changes in the net fractions of banks that had tightened standards.

About 25 percent of banks, on net, reported in the latest survey that they had tightened standards on prime residential real estate loans over the past three months. This figure is slightly higher than in the July survey but is still significantly below the peak of about 75 percent that was reported in July 2008. For the third consecutive quarter, banks reported that demand for prime residential real estate loans strengthened on net. About 30 percent of banks reported tightening standards on nontraditional mortgage loans, which represents a decline of about 15 percentage points in net tightening from the July survey. Only about 5 percent of domestic respondents, on net, reported weaker demand for nontraditional mortgages, the smallest net fraction reporting so since the survey began to include questions on the demand for nontraditional mortgages in April 2007.


Tags:


[The Housing Helix Podcast] Justin Fox, Time Magazine Columnist, Curious Capitalist Blogger, The Myth of the Rational Market Author

October 12, 2009 | 6:04 pm | Podcasts |


In this podcast, I have a conversation with Justin Fox, economics and business columnist for Time Magazine and author of the book The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street.

As publisher Harper Collins says about the book: “Chronicling the rise and fall of the efficient market theory and the century-long making of the modern financial industry, Justin Fox’s The Myth of the Rational Market is as much an intellectual whodunit as a cultural history of the perils and possibilities of risk.”

Here’s his interview on The Daily Show with Jon Stewart.

I first became acquainted with Justin by stumbling on his blog The Curious Capitalist which takes complex economic issues and translates them into everyday speak.

[Click to expand]

[Audio Quality Alert] What began as a 30-minute interview was cut to 18 minutes because of a random recurring podcast issue I have been trying to resolve: audio distortion. About 18 minutes into the interview I had to cut it short. My sincere apologies to Justin. But I got an idea and I set out this past weekend to solve the mystery. I am happy to report: problem solved going forward – I explain how at the end of the podcast – so much for myth of the rational podcast.

Check out the podcast

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.


Tags:


Weening Off Quantitative Easing, But Who Buys GSE Debt?

October 7, 2009 | 11:31 pm | |

Council on Foreign Relations has a very interesting chart on who financed the massive amounts of debt that the U.S. government issued in the first half of 2009.– it is divided by “official buyers” who generally are government entities have have motivations other than profit and “economic buyers” who are looking for a return.

The Federal Reserve plans to slow and then stop its purchases by the end of the first quarter of 2010. This raises the question of who will replace this source of demand, and at what price.

This would likely result in higher mortgage costs next year if the Fed stops buying GSE paper because of reduced liquidity (The article has several other charts which serve to emphasis the Fed’s role in stabilizing the banking system and keeping mortgage rates low).

The point of the Fed’s purchases was to lower mortgage rates during the worst of the housing slump and lower funding costs at the GSEs, which were struggling with skittish investors in the private market. That plan has largely worked; rates for a 30-year fixed-rate loan have fallen to 5.11%, according to Bankrate.com, and GSE debt with five-year maturities traded at 30.5 basis points above Treasuries this week.

But most analysts are predicting those rates will rise by at least 50 basis points before the Fed stops buying and could rise even further afterward. That might not hurt as much on the MBS side, as long as investors have an appetite for mortgages, but could pose problems on the debt side if investors are worried about funding an institution that might not be around a few years down the road.

At the same time, there is discussion of dismantling the GSE’s in favor of a new agency or restructure into smaller agencies.

My sense is that we can’t revert to the old Fannie and Freddie because they answered to 2 masters: Taxpayers and Shareholders.

I don’t see how mortgage rates don’t edge up next year. That offsets any hope that housing prices will begin to rise and suggests there are a number of years to go before they do.


Tags: ,


[New York Fed] Is the Worst Over?

October 5, 2009 | 11:45 pm | |

In the recently released paper “Is the Worst Over? Economic Indexes and the Course of the Recession in New York and New Jersey”, by Jason Bram, James Orr, Robert Rich, Rae Rosen, and Joseph Song the answer seems to be…sort of.

In this paper, key metrics of nonfarm payroll employment, real earnings (wages and salaries), the unemployment rate, and average weekly hours worked in the manufacturing sector were used to create coincident indexes for New York state, New York City and New Jersey. A coincident index is a single summary statistic that tracks the current state of the economy.

The paper points out that regional economic cycles are not the same as national cycles. They conclude that the region may not mirror, and could lag the national economy.

  • Wall Street, once it begins to rehire, will be subject to more regulatory oversight, which may limit its economic contribution.
  • Government shortfalls
  • Private education and health sector employment may not contribute as much of a stabilizing effect on total employment as it has in years past.


Get Weekly Insights and Research

Housing Notes by Jonathan Miller

Receive Jonathan Miller's 'Housing Notes' and get regular market insights, the market report series for Douglas Elliman Real Estate as well as interviews, columns, blog posts and other content.

Follow Jonathan on Twitter

#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
NYC CT Hamptons DC Miami LA Aspen
millersamuel.com/housing-notes
Joined October 2007